A SUMMER PROJECT REPORT

“A STUDY OF WORKING CAPITAL”

IN

CERTIFICATE

This is to certify that Mr. MOHSIN.I.TURAK student of datta meghe

institute of management of studies, nagpur has satisfactorily completed the Summer
Internship Project-Work titled “A STUDY OF WORKING CAPITAL” at “Sunflag
Iron and Steel Co. Ltd. (SISCO)” in partial fulfillment of degree of Master of

[1]
Business Administration (M.B.A.) program of the Rashtrasant tukadoji maharaj
nagpur university , for the Academic Year 2018-19.

Prof. Prof. Dr. Shaini Chib

Research Guide Dr. Hetal Gaglani Principal

Place – Nagpur
Date ://

DECLARATION

DATTA MEGHE INSTITUTE OF MANAGEMENT

STUDIES

[2]
I, (3RD SEMESTER), hereby declare that the summer project report is submitted by
me for the partial fulfillment of MBA at DATTA MEGHE INSTITUTE OF
MANAGEMENT STUDIES, NAGPUR. This report is an original work done by me
and it has never been submitted to any university/institution for the award.

Guide By: Dr. Hetal Gaglani

MBA Department.

TABLE OF CONTENTS

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 CONTENTS Page No.
Chapter 1 – Introduction
Introduction 1
Executive Summary 4
Objective Of Study 7
Chapter 2 - Company Profile
Company Profile 9
Industry Structure 11
History 12
Group History 15
Unit Of Sunflag 17
The Product 23
Application Of Sunflag Steel 24
Chapter 3 – Research Design & Methodology
Objectives Of the Study 26
Limitation Of Study 26
Research Methodology 27
Chapter 4 – Review Of Literature
Introduction 31
What is Working Capital 32
Importance Of Working Capital 33
Working Capital Management 34
Concept Of Working Capital 36
Determinants of Working Capital 38
Planning Of Working Capital 40
Working Capital Cycle 41
Chapter 5 – Data Analysis & Interpretation of Working
Capital
Ratio Analysis 46
Appraisal-Importance & Steps Involved 49
Balance Sheet Approach to Valuation 51
Balance Sheet 55
Hypothesis 78
Chapter 6 – Findings & Suggestions
Findings 80
Suggestions 80
Conclusion 81
Bibliography 82

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 INTRODUCTION

INTRODUCTION
The Sunflag group, founded by Shri. SatyadevBhardwaj in Kenya in
1937, today has its operations spread over 6 countries spanning 3 continents
and a diversified range of activities.
Sunflag has diversified range of activities in Kenya, Tanzania, Nigeria,
Cameroon, U.K. & India & its 20 companies employs over 10,000 people.
Sunflag has established the state-of the-art special steel mill in India built in
technical collaboration with Mannesmann Demag and Krupp Industrietechnik,
West Germany.

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 Sunflag was the first Indian-managed group to start manufacturing
venture in Cameroon in 1976, setting up knitting, processing & garmenting. It
also acquired a company manufacturing artificial leather, PVC, Tarpaulins.
In all Its plants, the group employs the most up to date technology in
collaboration with leading names like Sulzer, Didier, Ferher, Zinzer, Truschier
& Sunflag has now put India’s most modern steel plant the first integrated
steel plant of all it’s kind in country with capacity 2,00,000tonnes of rolled
products per annum.
Sunflag Iron and Steel Co. Ltd. is a prestigious unit of the SUNFLAG
GROUP. It has set up a state-of-art integrated plant at Bhandara; India.
Sunflag is the first composite steel plant in India accredited with the
prestigious ISO-9002 & QS 9000 certificate of systematic quality monetary.
The plant has a capacity to produce 200,000 tonnes per annum of high quality
special steel using iron ore and non coking coal as basic inputs.
The plant comprises a 1,50,000tonnes per annum Direct Reduction Plant, to
produce sponge iron for captive consumption in the Steel Melting Shop. This
shop comprises a 50/60 tonnesultra high power Electric Are Furnace with
Eccentric bottom arrangement; a Ladle auto mould level controller and
electromagnetic stirrer. This mill has a walking hearth reheating furnace, quick
roll-changing facilities, a 65 meters long walk and wait type modern cooling
bed and above all computerized process control linking and controlling the
various stages.

Within a short period of its inception in 1989, the SUNFLAG STEEL has
established itself as a major global force.
Sunflag is actively engaged in Pollution Control. The Company also runs
Sunflag School and Sunflag Hospital for the benefit of its employees.
LOCATION:
The plant is located in Bhandara (Maharashtra). It lies within the
northern boundaries of the National Highway No.6 and 70 kms from Nagpur
city.

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 EXECUTIVE SUMMARY
The general purpose of the project “Appraisal Techniques of
Corporate Finance Proposal” was to study the appraisal techniques used by
SISCO in evaluating the increase a firm value.
Corporate finance is also called Balance Sheet financing and provides
recourse of their balance to the lenders. The primary goal of corporate finance
is to enhance corporate value without taking excessive financial risks.
Appraisal Techniques involves analyzing the balance sheet and profit and loss
account, company and the industry, studying the various financial ratios, credit
rating (external and internal) and pricing.
Balance sheet reveals the financial position of a concern at a particular
point of time while profit and loss a/c is the summary of operations during the
operating year.
The program aims to improve the capital risk markets and the
knowledge of private investors of regions that are based far away from the
main financial centers and activities.
The following terms are mainly important in this project—
• Investment in stock
• Supplier finance
• Tax finance
• Cash generated by operations
• Investment in Fixed Assets
• Long-term debt

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 Once the strategic integration has been approved, any decision to
invest in a CV programmer, independent project or other type of corporate
project requires a viability analysis.
Ratios relate absolute figures and bring forth meaningful information.
It helps in making comparative analysis of the borrower’s company among the
peers and the industry as a whole. The ratios used by the bank to evaluate the
corporate are
1. Total Debt Equity Ratio
2. Current Ratio
3. Interest Coverage Ratio
4. Debt Service Coverage Ratio (DSCR)
5. Current Assets Turnover Ratio: {Gross Sales/ (Debtors+ Inventory)}:
6. PBIT to Total Assets.
7. Internal Rate of Return on discounted cash inflow
8. Sensitivity Analysis

Credit ratings are calculated from financial history and current assets
and liabilities. A credit rating tells a lender or investor the probability of the
subject being able to pay back a loan. A poor credit rating indicates a high risk
of defaulting on a loan, and thus leads to high interest rates or the refusal of a
loan by the creditor. The parameters on the basis of which the credit rating is
done in Dena Bank are
1. Exte /Govt. Policy/Environmental Risk
2. Project High Risk
3. IndustBusiness / Sector Risk
4. ManMManagement Risk
5. RisktrRisk
6. Security (Collateral)

Financial statement focuses on one or more elements of a company’s

financial condition or operating results. Our analysis emphasizes four areas of
analysis- with varying degrees of importance. They are considered “building
blocks” of financial statement analysis.

1. Short-term liquidity. Ability to meet short term obligations.

2. Capital Structure and Solvency. Ability to generate future revenues and
meet long-term obligations.
3. Operating performance and profitability. Success at maximizing
revenues and minimizing expenses from operating activities over the
long run.
4. Valuation. Projection of operating performance, ability to generate
sufficient cash flows to fund investment needs and valuation.

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Why Selected the Steel Company for a study?
Researcher especially selected Sunflag Iron and steel Company for the
purpose of this study, as it is a growing company. Steel industry in India has
been included in high priority industries. Several modernizations, up gradation
and renovation programs have been taken up for the steel industry in addition
to the extensive in house restructuring works undertaken by various steel
plants. The steel industry has at present access to best quality of raw material
inputs from anywhere in the world and access to world- class technology and
capital goods.
So study of financial status of the SUNFLAG IRON & STEEL
CO.LTD. will give a good exposure to the financial structure of the steel
industry in India. This will definitely help in future growth of the researcher in
specialization of finance.

OBJECTIVE OF STUDIES:
• To decide on the suitable source of finance for SISCO.
• To Review the appraisal technique for evaluation of source of finance.
• To Review the various investment decision and their valuation technique.
• To Study the measure that relational any two variable.
• To Study the Liquidity position.
• To Study the Operating efficiency.
• To Study the different ratio analysis.
• To Study the Overall profitability.

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NEED OF PROJECT WORK:
The main objective of carrying out this project is to know & gain
practical knowledge about working capital management in a manufacturing
unit like Sunflag Iron & Steel Company Ltd. The project study also provides
an opportunity to develop communication skills, analytical skills and also
exposes to the organization culture and the actual working of the organization.

SELECTION OF THE TOPIC:

Working capital management is a managerial accounting strategy
focusing on maintaining efficient levels of both components of Working
capital, current assets and current liabilities, in respect to each other. Working
capital management ensures a company has sufficient cash flow in order to
meet its short-term debt obligations and operating expenses.

COMPANY [10]
PROFILE
Company Profile
Sunflag Iron and Steel Company Limited (Sunflag Steel) is primarily engaged
in the iron and steel business. During the fiscal year ended March 31, 2010(fiscal
2010), the direct production plant of the Company produced 115,299 metric tons of
steel. During fiscal 2010, the steel melt shop of the Company produced 207,757
metric tons of steel. In fiscal 2010, Sunflag Steel produced 203,663 metric tons of
rolled products. In fiscal 2010, the Company produced 127,002 metric tons of pig
iron. During fiscal 2010, the Company’s power plant generated approximately 146.1
million kilowatt hours of power and the Belgaon coal block of the Company produced
140,147 metric tons of coal. The products manufactured by the Company include
flats, rounds and round cornered squares. The Company’s subsidiaries include Sunflag
Power Limited and Sunflag Special Steels Limited.
Sunflag had set up a 'state of the art' integrated Steel plant at WarthiBhandara
Road to produce high quality special steel with manufacturing facilities like Sponge
Iron plant, Mini Blast Furnace, Sinter plant and Captive Power Plant. The company
has set up a state of art integrated plant at Bhandara, India to produce 2,00,000 tonnes
per annum of high quality steel using iron ore and non-coking coal as basic inputs.
The main products of the company are spring steel rounds flats, carbon steel and alloy
steel. They are used by automobile leaf spring manufacturers, engineering goods
manufacturers and the forgings industry. Spring steel forms 70% of the total
production. The plant comprises a 1,50,000tonnes per annum Direct Reduction Plant,
to produce sponge iron for captive consumption in the Steel Melting Shop.

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 This apart, the Company is in the process of executing new projects viz.
Blooming Mill, additional Sponge Iron and Captive Power plant. The company has
established its brand name and has become a reputed supplier in Flat Bars, Round
Bars, Bright Bars and Wire Rods of Alloy Steel, Spring Steel and Stainless Steel and
captured better position in these market segments. It is also embarking on an export
thrust and is regularly supplying to various customers in South East Asian, African,
Middle East and South American countries. Opportunities in other grades of alloys
Sunflag Steel sees more opportunities in the years to come due to continuous
developments of new grades of high alloy steel as well wire rod and cold rolling
sheets. Further, venturing into the self dependency of raw material and power in
decreasing in the cost of production and enhancing the profitability. Performance
improved in FY10

Industry Structure

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 Indian Iron and steel Industry can be divided into two main sectors Public
sector and Private sector. Further on the basis of routes of production, the Indian
steel industry can be divided into two types of producers.

ABOUT SUNFLAG
HISTORY:-
Sunflag Iron & Steel Co.ltd.as part of the renowned Sunflag Group. The
sunflag Group was founded by LateShri. SatyadevBhardwaj in Kenya in 1937. It has
grown steadily and had spread its manufacturing operation in 6 countries and
spanning 3 continents. Today, Sunflag has a diversified range of activities in Kenya,
Tanzania, Nigeria, Cameroon, The United Kingdom & India and its 20 companies
employ over 12,000 people. It has a turnover of USD 200 million and annual profits
to the order of USD 25 million. Except for sunflag steel, all over companies are
mainly engaged in the business of textile industry.
More significantly, the group is credited with the growth of several industries,
by continuously adopting new technologies. Name like SULZER in weaving, DIDIER

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in polyester filament yarn, FEHRER for non-woven, ZINZER TRUTZCHILER and
SCHLAFHORT in spinning, are today proud to be associated with sunlfag.
This being a brief introduction about Sunlfag Group, the profile of Sunflag
Steel is given below
A. SUNFLAG STEEL:-
HAMBURGER STAHLWERKE.Sunflag has put up India’s most modern
steel plant, the first integrated steel plant of its kind in the country with capacity of
200000 tons of rolled products per annum, comparable to the best in the world.
Sunflag steel has revolutionized steel making by producing high quality, steel using
Iron Ore and non- coking coal as basic inputs.
B. A NEW ERA OF SOPHISTICATION IN STEEL MAKING:-
Quality effectiveness of steel produced at Sunflag Iron & steel Co. Ltd., rests
on use of state-of-the-art technology along with computerized process control and
monitored operating parameters. The production facilities at Sunflag include:
1)A KRUPP CODIR Direct Reduction plant to Produce 150000 tons per
annum of highly metallised Sponge Iron. Sponge Iron is obtained by the reduction of
Iron rich ores in the rotary kiln. Low cost non-coking coal available in sufficient
quantity is used as reductantand fuel. In order to get consistent quality of DRI,
continuous monitoring of Sponge Iron is made for total Fe, degree of metallization
and metallic Fe.
2) A MANNESMANN DEMAGE 50/60 tones. Ultra High Power (UHP )
Eccentric Bottom Tapping (EBT) Electric Arc Furnace (EAF) with facilities for
continuous feeding of sponge iron, coke and oxygen controlled by process computer
to optimizes energy utilization and melting time. EBT ensures slag free tapping of
liquid steel. Approx.70% of charge mix for EAF consists of sponge iron which gives
very low tramp elements like Copper, Tin, Nickel, etc.
3)A DEMAG 50/60 tones ladle Reheating Furnace (LHF) with continuous
Argon purging through bottom porous plug. Addition of Ferro Alloys like FeSi,
FeMn, SiMn, FeMo, Nickel, etc using computerized alloy weighing & feeding
system, ensures precise control on chemistry.
The sophisticated spectrometer connected to melt shop MAINFARAME computer
aids in prompt correction of the chemistry, Celox probe for dissolved oxygen
measurement along with Casi wire feeder to refine and control inclusion morphology
ensures production of “clean” steel in a variety of grades.

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 4)Six meters radius three strands DEMAG continuous casting machine
alonwith automatic mould level control computerized secondary cooling system. Hot
billet Surface temperature monitoring with the help of infra-red chermo meters. To
avoid re-oxidisation of liquid metal stream from ladle to tundish, tundish to mould are
used.
5)60 tones per hour capacity walking hearth reheating furnace designed by
STEINHEURTEY and monitored through CCTV. Automatic temperature control of
furnace along with minimum oxygen level in furnace atmosphere to avoid scale loss.
6)A 18 stands, 2 high continuous bar and section mill with horizontal and
vertical finishing stands. Centralised control of the entire mill from the main pulpit
through three Real-Time Process Computers. Mill control computer for mill set up,
loop control, cascade control, auto cobble control, auto control, material tracking etc.
CCTV system for monitoring billets and bar movements.
Better dimension control is obtained by providing facilities like Mill Tension
Control for primary stands and lopper control for finishing stands. Cooling Bed
control computer for sequence control and cut-lengths. Quick replacement system for
stands gives high output with high flexibility for servicing small orders.
7)The software for the entire system has been developed by HAMBURGER
STAHLWERKE, West Germany.
The combined advantages of computer hardware and software include high
productivity, low energy consumption, low electrode consumption, optimization of
alloying elements, quality control, flexibility in producing various grades of steel,
high yield and lower material consumption, lower manpower requirement, automatic
data logging and generation of factual reports.
Higher availability, higher productivity optimum throughput, increased safety
and superior quality are hallmarks of automation.
SISCO, with quality product is consistently servicing the requirement of HNK
Japan, HNK Thailand, Mitsubishi Steel Manufacturing, Japan and other OEM
suppliers of leaf springs, situated in Indonesia, Philippines, Bangkok and Malaysia.
We have also supplied few lots to HoeschFedern, Germany and General Motors.
SISCO is also catering almost 65 % requirement of the domestic market in India,
including all OEMs like Telco, Ashok Leyland, MarutiUdyog, Mahindra & Mahindra
etc.
As an example of product development for spring steels for international
OEM market, SUNFLAG are in the process of developing special high tensile springs

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containing vanadium, Molybdenum and Niobium wherein a close control on
metallurgical properties such as grain size is achieved.
The major grades of steel manufactured by SUNFLAG include;
1) Carbon Steel
2) Alloy Steel
3) Free Cutting Steel
4) Spring Steel
5) Stainless Steel
6) These grades are produced in the form of Rounds, Flats, Hexagon and Wire
Rod.

Group History

1930’s

The Group was founded by SatyadevBhardwaj. He identified a need for

quality garments and textiles in East Africa and established the first textile plant in
Kenya to serve the local market.
1950’s
The textile operation in Kenya became one of the leading companies in the
country. Satyadev’s three sons; PriyaBhushan, VijayBhushan andRaviBhushanstarted
to take an active role in the business. The operations included knitting, dyeing and
finishing and garment making.
1960’s

The Group embarked on its first expansion outside Kenya with investment in
Nigeria. The potential was huge with a desperate need for quality garments and
textiles for a rapidly expanding population.
1970’s
The founder handed over the running of the business to his sons. The Group
expanded into Tanzania and embarked on an ambitious programmer of vertical
integration adding spinning and weaving to all its operations. Professional
management was brought in to run operations with the family concentrating on policy
and strategy.

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1980’s
Despite political and financial difficulties in Africa the Group continued to
expand its textile operations in Kenya, Tanzania, and Nigeria. The Group diversified
in India with an integrated steel plant, invested widely in property, and established a
filament yarn making plant in Thailand.

1990’s

The Group consolidated its worldwide operations and diversified into the
healthcare and power generation industry. In India the Group invested in a hospital
and a Medical Research Centre and a power generation plant. Towards the end of the
decade the Group entered the North American market.
2000’s
The North American operations were expanded with additional manufacturing
units. The African units were modernized and steel manufacturing started in Nigeria.
The steel mill in India was expanded.

UNIT OF SUNFLAG

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 SUNFLAG STEEL uses the (Sponge iron + Liquid Metal + Scrap)--Electric
arc furnace--Ladle heating furnace--VD/AOD--Continuous casting machine--Rolling
mills route, backed up by the state-of-the-art technology and computerized process
control.
The production facilities include:
Sinter Plant (SINTER):

A 33 M2 sinter plant, designed by Beijing Sino- Steel industry & trade Group
Corp.(SSIT) and Jiangsu Province Metallurgical Designing Institute (JSMDI) Co. Ltd.
The technology of it is based on principle of economical, applicable safe and
operational. The annual production is expected to be 4,70,000Tonnes.
Mini Blast Furnace (MBF):

A Blast furnace of working volume 350 M3 designed by MECON Ltd. produce

2,30,000 MT / annum of basic grade hot metal has been installed and sucessfully
commissioned. The hot metal is mainly used in the steel melting shop as a raw
material and surplus hot metal poured in pig casting machine. The Pig casting
machine is designed by KBS Paramount & capacity 800 Tonnes per day (TPD). The
Blast furnace gas is used for stoves heating, heating of preheating furnace of bar and
section mill, heating of boiler ,sinter plant. Slag which is a byproduct is mainly sold to
cement plants.
Direct Reduction Plant (DRP):

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 Based on Krupp's Codir process. The DRP can produce 150,000 tones per year
of Sponge iron from iron ore and coal. Additionally, the flue gases help generate 30
MW of Electric power.
Power Plant (PP):

A 30 MW Captive Power Plant is having two turbine set and two boilers. One
boiler operates on Waste Gas from the DRP and another on Coal fludisedbed .
Electric Arc Furnace (EAF):

A Mannesmann Demag make 50/60 tones Ultra--high--power and Eccentric--

bottom-- tapping EAF with computer controlled continuous charging and dynamic
energy management system. It ensures low tramp elements like bismuth, copper, tin
etc. and at low cost.
Ladle Heating Furnace (LHF):

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 A Mannesmann Demag make 50/60 tones, rating 9 MVA, continuous Argon
purging in the ladle bottom through porous plug, equipped with Continuous Alloy
Feeding System, Weighment System and Calcium silicide wire feeder to refine and
control morphology.

Vacuum Degassing Unit (VD):

G.A. Danielli, India has supplied a 60 tones capacity Vacuum Degassing Unit
having 8 ejectors which deliver a pump down time of 5 minutes to 1 m bar. Liquid
metal is treated for removal of Hydrogen, Oxygen and Nitrogen. Lower pump down
time ensures consistent and predictable drop in temperature during the VD process-
Avoiding the re-heating of metal completely. Guarantee to reach desired vacuum level
in all the heats. Effective degassing leads to very high cleanliness level &low gas
levels ensures long trouble free component life. This will provide the capacity to
manufacture high value added Steel needed for critical applications.
Continuous Casting Machine (CCM):

Double (10.25/18 meters) radius, 3 strand CCM is equipped with automatic

mould level control, automatic powder feeder with liquid metal controlled at +/-3
mm, auto startup of cast & uniform rate of powder feeding, special tundish design,
computerized secondary cooling, infra-red therometers for surface temperature
monitoring, ceramic and bellow shrouds to prevent re-oxidation and Electro-magnetic

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stirrer for homogenization. Supplier is M/s CONCAST INDIA. Caster is feasible to
Cast larger sections up to 280*320 mm with long Metallurgical length of 16 meters. It
has a provision of online automatic heat number marking system.
Bar and section mill (BSM):

The 60 tones per hour, 18 stand, 2 high continuous Mannesmann designed

rolling mill is equipped with walking hearth type re-heating furnace, process control
through real-time computers, Closed circuit TV system for billet and bar movements.
Alloy steel mill (ASM):

This specialty 3 Hi reversible cross country mill meets the product sizes above
45 mm upto 105 mm diameter and 110 mm Round Corner Squares, in alloy, carbon,
spring and free-cutting steels. The Alloy Steel Mill consists of Pusher type re-heating
furnace of capacity of 14 ton/hr.Five stands woth one stand of 3 Hi roughing, two
stands of 3 Hi intermediate and one stand of 2 Hi finishing. Rake type cooling bed
and one hot saw cutter.

Block Mill(BM):

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 Supplied by DanieliMorgardshammar of Sweden. Wire Rod Block (with 10
roll stands-vertical and horizontal configuration) with 2 DC motors is facilated with
Water Cooling Line for cooling the wire rod to desired laying temperature & Vertical
Mandrel for coil formation. The min and max rolling speed varies between 6 m/s to
90 m/s. Products Range is from 4.6 mm to 16 mm dia wire rods and 8 & 10 mm dia
TMT; 1 MT coil weight. Coil ID/OD ~ 900/1200 mm.Grades manufactured are
Carbon steel, alloy steel, spring steel, free cutting steel, stainless steel etc.
Garret Coiler: (GC)

Supplied by DanieliMorgardshammar of Sweden. Garret Coiler with Rockwell

control system, oil circulation for lubrication, 3 pinch rolls, coil unloader& Swiveling
Elevator with hydraulic motor, 2 Slat conveyor. Product ranges from 12 mm to 38 mm
coils, Grades manufactured are Carbon steel, alloy steel, spring steel, free cutting steel
& stainless steel.
The Products
The SUNFLAG STEEL is an ISO/TS 16949:2009 and ISO-9001:2008
approved, NABL accrediated AD 2000 Merkblatt WO Certified from TUEV-NORD,
backed up with sound management practices and a highly motivated team. It is a
small wonder the Sunflag products are exported to a number of countries
The products include:
Flats:
The spring steel that goes into the
automobile and railway suspension.
The grades include Silico Manganese,
Chrome, Vanadium steel. In
specifications like: DIN, SAE/AISI,
BS The sizes from 44 mm wide to 120
mm wide; and 5mm to 25mm thick.

Rounds:
In carbon, free-cutting, spring and

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 alloy steels. In specifications like:
DIN, SAE/AISI, BS et cetera. In sizes
from 15 mm to 90 mm in diameter.
For the forging, automobile, spring
industries.

Round Cornered Squares

(RCS):
In carbon, free-cutting and alloy
steels. In specifications like: DIN,
SAE/AISI, BS et cetera. In sizes from
45x45 mm to 90x90 mm. For the
forging, automobile industries.

APPLICATION OF SUNFLAG STEEL:-

 Stainless Steel for industrial applications.
 Defense equipment viz. bomb shell manufactured by Ordance Factory.

TYPE BEAD WIRES:-

 Industrial fasteners
 Rear axles in commercial vehicles.
 Gears, pinions and forgings for autobiles applications.
 Seamless tubes. Races and rings for bearings.
 Springs for freight Cars.

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 RESEARCH
DESIGN
&
METHODOLOGY

OBJECTIVES OF THE STUDY

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  To the study of working capital Management.

 To understand the Concept of working capital and working capital

cycle.
 To analysis the holdings levels and important ratios for working capital

LIMITATION OF STUDY:
Following limitations were encountered while preparing this project:
1) Limited data:-This project has completed with annual reports; it just
constitutes one part of data collection i.e. secondary. There were limitations for
primary data collection because of confidentiality.
2) Limited period:-This project is based on four year annual reports.
Conclusions and recommendations are based on such limited data. The trend of last
four year may or may not reflect the real working capital position of the company.
3) Limited area:-Also it was difficult to collect the data regarding the
competitors and their financial information. Industry figures were also difficult to get.
Although every effort has been made to study the “Financial Statement Analysis” in
detail, in an organization of SISCO size, it is not possible to make an exhaustive study
within a very short duration.
It is not possible to include data of 2013-14, as the audited financial report has
not come yet (at the time of preparation of this report).
Apart from the above constraint, one serious limitation of the study is that it is not
possible to reveal some of the financial data owing to the policies and procedures laid
down by SISCO. However the available data is analyzed with great effort to get an
insight into Financial Statement Analysis in SISCO.

RESEARCH METHODOLOGY
Research methodology used for study includes both primary & secondary
sources of data. However most of study is conducted based on secondary sources.
Research methodology is a very organized and systematic way through which a
particular case or problem can be solved efficiently. It is a step-by-step logical
process, which involves:

[25]
 The research is an applied research which is an attempt to apply the basis
principle and existing knowledge for the purpose of solving the operational problems.
In this type of research the researcher knows the probable solution to the problem to
gain deeper insight in to the problem to be conducted in the research.
The researcher would like to gather information for carrying out his analysis
by using the following method during the research (ratio analysis) study.
This research would primarily be explorative in nature but at the same time,
the principle of statistical research will also be incorporated. However, it will not be a
survey research hence.
The methods or the techniques which have been used for collection and
analysis of data in this study are as follows:
COLLECTION OF DATA:-
The data sources would be primary as well as secondary.
Primary sources would mainly be the semi structures interviews with the Top
Management as well as functional managers.
• Observation and personal interview with senior managers.
• One of the objective of this research study being, to study the components of
short term financial requirement for the Company under study. The managers
at Sun flag’s finance department have been interviewed to collect data.
• To fine-tune, experience gained by the researcher, would like to take the
expertise opinion to shape the project report.
The Secondary sources would be the various accounts books of the company
as well as various articles and treatises on the available books, journals, Internet,
annual reports, Company literatures and other financial statements published by the
company during the last four years.
Data required will be collected from the annual reports and other financial
statements published by the Company during the last four years.
• Reference of Text book relating to Financial Ratios. General introduction to a
specific topic are elaborated referring to the text books having specialization
in the relevant subject.
• Collection of information/ data publication in the newspapers, magazines and
information available in the Internet are used.
• Ratios are directly calculated from the balance sheet of the Company and then
crosschecked with management.
• Standards could not be taken, as the same was not available for all the ratios.
• Only few important key ratios have been taken for the financial analysis of the
companies, which are considered relevant for the project.

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• The information collected through above sources are primarily compiled to s
uit the research study.
• After compilation of these information and data, they are tabulated for better
understanding and also may be used for reference in future.
• Once the data collected are tabulated in the required format, the findings are
explained or justified wherever necessary and deviations if any.
• Similarly, conclusions and suggestions are made from the above finding.

(i) Collection of Data: The data of SISCO for the period 2009-10 to 2011-12 used
in this study has been collected from the Annual Reports for the years 2009-10 to
2011-12.
Secondary sources of data mainly include annual reports of SISCO. Statement
of changes in working capital for the past four years is done using the data taken from
these financial reports. Similarly analysis of operating cycle and calculations of ratios
is done. Apart from this, the website of SISCO is referred to know the products,
product facilities, network etc.
Industry analysis is done based on the information gathered from newspapers
and websites of Indian steel ministry & other sector related websites.

The use of primary sources is limited to interviews with some of the

employees in finance department. The reason being, it is against the company’s
policies to reveal the sensitive financial information.
(ii) Analysis of Data: For analyzing the data the technique of ratio analysis,
simple mathematical tools like percentages and averages etc. have been used.
Similarly, conclusions and suggestions are made from the above finding.

[27]
 REVIEW
OF
LITERATURE

INTRODUCTION

[28]
 Management is an art of anticipating and preparing for risks, uncertainties and
overcoming obstacles. An essential precondition for sound and consistent assets
management is establishing the sound and consistent assets management policies
covering fixed as well as current assets. In modern financial management, efficient
allocation of funds has a great scope, in finance and profit planning, for the most
effective utilization of enterprise resources, the fixed and current assets have to be
combined in optimum proportions.

Working capital in simple terms means the amount of funds that a company
requires for financing its day-to-day operations. Finance manager should develop
sound techniques of managing current assets.

WHAT IS WORKING CAPITAL?

Working capital refers to the investment by the company in short terms
assets such as cash, marketable securities etc. Net current assets or net working
capital refers to the current assets less current liabilities.

Symbolically, it means,

Net Current Assets = Current Assets - Current

Liabilities.
The following are the most important definitions of Working capital:
1) Working capital is the difference between the inflow and outflow of funds. In
other words it is the net cash inflow.

[29]
2) Working capital represents the total of all current assets. In other words it is
the Gross working capital, it is also known as Circulating capital or Current
capital for current assets are rotating in their nature.
3) Working capital is defined as the excess of current assets over current
liabilities and provisions. In other words it is the Net Current Assets or Net
Working Capital.

IMPORTANCE OF WORKING CAPITAL

Working capital may be regarded as the lifeblood of the business. Without
insufficient working capital, any business organization cannot run smoothly or
successfully. In the business the Working capital is comparable to the blood of the
human body. Therefore the study of working capital is of major importance to the
internal and external analysis because of its close relationship with the current day to
day operations of a business. The inadequacy or mismanagement of working capital is
the leading cause of business failures. To meet the current requirements of a business
enterprise such as the purchases of services, raw materials etc. working capital is
essential. It is also pointed out that working capital is nothing but one segment of the
capital structure of a business. Financial management is called upon to maintain
always the right cash balance so that flow of fund is maintained at a desirable speed
not allowing slow down. Thus enterprise can have a balance between liquidity and
profitability.

[30]
 WORKING CAPITAL MANAGEMENT
INTRODUCTION:
Working Capital is the key difference between the long term financial
management and short term financial management in terms of the timing of cash.
Long term finance involves the cash flow over the extended period of time i.e. 5 to 15
years, while short term financial decisions involve cash flow within a year or within
operating cycle. Working capital management is a short term financial management.
Working capital management is concerned with the problems that arise in attempting
to manage the current assets, the current liabilities & the inter relationship that exists
between them. The current assets refer to those assets which can be easily converted
into cash in ordinary course of business, without disrupting the operations of the firm.

[31]
Composition of working capital:
 Major Current Assets
1) Cash
2) Accounts Receivables
3) Inventory
4) Marketable Securities

 Major Current Liabilities

1) Bank Overdraft
2) Outstanding Expenses
3) Accounts Payable
4) Bills Payable
The Goal of Working Capital Management is to manage the firm’s current
assets & liabilities, so that the satisfactory level of working capital is maintained. If
the firm cannot maintain the satisfactory level of working capital, it is likely to
become insolvent & may be forced into bankruptcy. To maintain the margin of safety
current assets should be large enough to cover its current liabilities. Main theme of
the theory of working capital management is interactionbetween the current assets &
current liabilities

CONCEPT OF WORKING CAPITAL:

There are 2 concepts:
1. Gross Working Capital

2. Net Working Capital

[32]
1. Gross working capital:

It is referred as total current assets. Focuses on, optimum investment in

current assets: Excessive investments impair firm s profitability, as idle investment
earns nothing. Inadequate working capital can threaten solvency of the firm because
of its inability to meet its current obligations. Therefore there should be adequate
investment in current assets.
Financing of current assets:
Whenever the need for working capital funds arises, arrangement should be
made quickly. If surplus funds are available they should be invested in short term
securities.
2. Net working capital (NWC):

It is defined in two ways:

1. Difference between current assets and current liabilities
2. Net working capital is that portion of current assets which is financed
with long term funds

Net If the working

working capital is efficiently
capital=current managed then
asset-current liabilities

Implications of Net Working Capital:

Net working capital is necessary because the cash outflows and inflows
do not coincide. In general the cash outflows resulting from payments of current
liability are relatively predictable. The cash inflows are however difficult to predict.
More predictable the cash inflows are, the less NWC will be required. But where the
cash inflows are uncertain, it will be necessary to maintain current assets at level
adequate to cover a current liability that is there must be NWC. For evaluating NWC
position, an important consideration is tradeoff between probability and risk. The
term profitability is measured by profits after expenses. The term risk is defined as the
profitability that a firm will become technically insolvent so that it will not be able to
meet its obligations when they become due for payment. The risk of becoming

[33]
technically insolvent is measured by NWC. If the firm wants to increase profitability,
definitely increase. If firm wants to reduce the risk, the profitability will decrease.

DETERMINANTS OF WORKING CAPITAL:

1) Nature of business:-

In some business organizations, the sales are mostly on cash basis and the
operating cycle is also very short. In this concern the working capital requirement is
comparatively less. Mostly service giving companies come in this category.
In manufacturing concern, usually the operating cycle is very long and a firm
has to give credit to customers for improving sales. In such cases, the working capital
requirement is more.

2) Production policy:-

Working capital requirements also fluctuate according to the production

policy. Some products have a seasonal demand but in order to eliminate the
fluctuations in working capital, the manufacturer plans production in a steady flow
throughout the year.
3) Market conditions:-

Due to competition in the market, the demands for working capital fluctuate.
In a competitive environment, a business firm has to give liberal credit to customers.

[34]
Similarly it will have to maintain large inventory of finished goods to service the
customers promptly. In this situation larger amount of working capital will be
required.

4) Growth and expansion activities:-

The working capital needs of the firm increase as it grows in term of sales or
fixed assets. A growing firm may need to invest funds in fixed assets in order to
sustain its growth of production and sales. This will in turn increase investments in
current assets which will result in increase in working capital needs.

5) Operating efficiency:-

The operating efficiency of the firm relates to the optimum utilization of

resources at minimum cost. The firm will be effectively contributing to its working
capital if it is efficient in controlling operating costs. The working capital is better
utilized and cash cycle is reduced which decreases working capital needs.
6) Sales growth:-

As the sales grow, the working capital needs also go up. Actually it is very
difficult to establish an exact proportion of increase in current assets, as a result of
increase in sales. Advance planning of working capital becomes essential because
current assets will have to be employed even before growth in sales takes place. Once
sales start increasing, they must be sustained. For this a firm has to expand its
production facilities which will require more investments in fixed assets. This will in
turn result in more requirements of current assets which will increase working capital
needs.

7) Dividend policy:-

A company has to pay dividends in cash as per company act, 1956. If a liberal
policy is followed for payment of dividends, more working capital will be required.
The needs for working capital will be required. The needs for working capital will be
substantially reduced if dividend policy is conservative.

[35]
 PLANNING OF WORKING CAPITAL:
Working capital is required to run day to day business operations. Firms differ
in their requirement of working capital (WC). Firms aim is to maximize the wealth of
shareholders and to earn sufficient return from its operations.
WCM is a significant facet of financial management.
Its importance stems from two reasons:
 Investment in current asset represents a substantial portion of total investment.
 Investment in current assets and level of current liability has to be geared
quickly to change in sales.

Business undertaking required funds for two purposes:

 To create productive capacity through purchase of fixed assets.
 To finance current assets required for running of the business.

The importance of WCM is reflected in the fact that financial managers spend
a great deal of time in managing current assets and current liabilities. The extent to
which profit can be earned is dependent upon the magnitude of sales. Sales are
necessary for earning profits. However, sales do not convert into cash instantly; there
is invariably a time lag between sale of goods and the receipt of cash. WC
management affect the profitability and liquidity of the firm which are inversely
proportional to each other, hence proper balance should be maintained between two.
To convert the sale of goods into cash, there is need for WC in the form of current
asset to deal with the problem arising out of immediate realization of cash against
good sold. Sufficient WC is necessary to sustain sales activity. This is referred to as
the operating or cash cycle.

[36]
 WORKING CAPITAL CYCLE:

A firm requires many years to recover initial investment in fixed assets. On

contrary the investment in current asset is turned over Many times a year. Investment
in such current assets is realized during the operating cycle of the firm. Each
component of working capital (namely inventory, receivables and payables) has two
dimensions .TIME and MONEY. When it comes to managing working capital - TIME
IS MONEY. If you can get money to move faster around the cycle (e.g. collect dues
from debtors more quickly) or reduce the amount of money tied up (e.g. reduce
inventory levels relative to sales), the business will generate more cash or it will need
to borrow less money to fund working capital. As a consequence, you could reduce
the cost of bank interest or you'll have additional free money available to support
additional sales growth or investment. Similarly, if you can negotiate improved terms
with suppliers e.g. get longer credit or an increased credit limit; you effectively create
free finance to help fund future sales It can be tempting to pay cash, if available, for
fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this
is now longer available for working capital. Therefore, if cash is tight, consider others
ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay

[37]
dividends or increase drawings, these are cash outflows and, like water flowing
downs a plughole, they remove liquidity from the business.

Operating or Cash cycle:

Cash

Purchase
Collection
of
Raw
of
Receivabl
materials
es

Raw
Accounts
material
invento
Receivable
ry

Issue of materials to
Production &
incurring
expenses.

Sale
s
Work
-i - process
n

Finished
good
s

The operating cycle or cash cycle refers to the length of time between the
firms paying the cash for materials, etc., entering into production process/stock & the
inflow of cash from debtors (sales), suppose a company has certain amount of cash it
will need raw materials. Some raw materials will be available on credit but, cash will
be paid out for the other part immediately. Then it has to pay labor costs & incurs
factory overheads. These three combined together will constitute work in progress.
After the production cycle is complete, work in progress will get converted
into sundry debtors. Sundry debtors will be realized in cash after the expiry of the
credit period. This cash can be again used for financing raw material, work in

[38]
progress etc. thus there is complete cycle from cash to cash wherein cash gets
converted into raw material, work in progress, finished goods and finally into cash
again. Short term funds are required to meet the requirements of funds during this
time period. This time period is dependent upon the length of time within which the
original cash gets converted into cash again. The cycle is also known as operating
cycle or cash cycle.
Operating cycle can be determined by adding the number of days required for
each stage in the cycle. For example, company holds raw material on average for 60
days, it gets credit from the supplier for 15 days, finished goods are held for 30 days
& 30 days credit is extended to debtors. The total days are 120, i.e., 60 15 + 15 + 15 +
30 + 30 days is the total of working capital.
Thus the working capital cycle helps in the forecast, control & management of
working capital. It indicates the total time lag & the relative significance of its
constituent parts. The duration may vary depending upon the business policies. In
light of the facts discusses above we can broadly classify the operating cycle of a firm
into three phases viz.
1. Acquisition of resources.
2. Manufacture of the product and
3. Sales of the product (cash / credit).
First and second phase of the operating cycle result in cash outflows, and be
predicted with reliability once the production targets and cost of inputs are known.
However, the third phase results in cash inflows which are not certain because
sales and collection which give rise to cash inflows are difficult to forecast accurately.
Operating cycle consists of the following:
 Conversion of cash into raw-materials;
 Conversion of raw-material into work-in-progress;
 Conversion of work-in-progress into finished stock;
 Conversion of finished stock into accounts receivable through sales
 Conversion of accounts receivable into cash

In the form of an equation, the operating cycle process can be expressed as

follows:

[39]
Operating cycle = R + W + F + D C

R = Raw material storage period

W = Work in progress holding period

F = Finished goods storage period

D = Debtors collection period

C = Credit period availed

DATA ANALYSIS
&
INTERPRETATION
OF [40]

WORKING CAPITAL
 Ratio-Analysis
Ratios relate absolute figures & bring forth meaningful information. Absolute
figures are only data. They do not reveal anything without processing. Ratios are
processed data .Yet interpretation of these ratios varies from person to person
depending upon the relative purposes and goals and a lot of individual judgment.
Ratio Analysis as a concept or technique is as old as accounting concepts.
Ratio analysis helps to appraise the firms in the term of their profitability and
efficiency of performance, either individually or in relation to other firms in same
industry. Ratio analysis is one of the best possible techniques available to
management to impart the basic functions like planning and control.
As future is closely related to the immediately past, ratio calculated on the
basis historical financial data may be of good assistance to predict the future.
E.g. On the basis of inventory turnover ratio or debtor’s turnover ratio in the past, the
level of inventory and debtors can be easily ascertained for any given amount of
sales.
Here, we are taking“Ratio Analysis” as the tool for financial analysis because
it not only gives the quantitative relationship between figures and groups but also
highlights qualitative relationships.
The management of the business unit looks to the financial statements from
various angles.
The one of the most frequently used yardstick is “RATIO ANALYSIS”. Ratio
analysis involves the use of various methods for calculating and interpreting financial
ratios to assess performance and status of the business organization. Ratios are
relative figures reflecting the relationship between variables and enable the analysts
to draw conclusions regarding the financial operations.

[41]
 The study of financial ratios can be especially fruitful, because it helps us see
through the eyes of those who are subject to accounting measures of performance and
who often depend heavily on accounting data for guidance in decision-making. There
is no escaping the linkage of accounting and financial management. So the study of
management will help regardless the kind of person and his nature of activity in
which he is involved.

A) Importance of Ratios analysis:-

The focus of financial analysis is always on the crucial information contained
in the financial statement. This depends on the objectives and purpose of such
analysis. The purpose of evaluating such financial statements is different from person
to person depending upon its relationship.
The management of the business unit, looks to the financial statements from
various angles. The one of the most frequently used yardstick is “Ratio Analysis".
Ratio analysis involves the use of various methods for calculating and interpreting
financial ratios to assess performance and status of the business organization. Ratios
are relative figures reflecting the relationship between variables and enable the
analysts to draw conclusions regarding the financial operations.
The Importance of ratio analysis is as under:
 It helps to analysis the probable casual relation among different items after
analyzing and scrutinizing the past result.
 The ratios that are derived after analyzing and scrutinizing the past result,
helps the management to prepare budgets, to formulate policy and to
prepare the future plan of action and thus helps as a guide to harmonize
among different items for preparing budgets.
 Short-term liquidity position, i.e. whether the Sunflag is able to maintain its
short-term maturing obligations or not, that can be easily known by
applying liquidity application of leverage or profitability ratios. Thus,
the ratio helps an invaluable aid to the users of Financial Statement.
B) Use and Benefits of Ratio analysis:
Ratio analysis is the most powerful tool in management analysis. It is used as
a tool analysis and interprets the financial health of an enterprise. The benefit of ratios
is not only financial managers. The suppliers of goods on credit, banks financial
institutions, shareholders and managers all make use of ratios as tools in evaluating
the financial position. With the benefit of ratio analysis one can measure the financial
[42]
condition of a firm and can indicate whether the condition is strong, good,
questionable or poor.

A financial ratio is a relative magnitude of two selected numerical values

taken from an enterprise's financial statements. There are many standard ratios used
to try to evaluate the overall financial condition of a corporation or other organization
and to compare the strengths and weaknesses in various companies. If shares in a
company are traded in a financial market, the market price of the shares is used in
certain financial ratios.
The more similar the company is to those from which we calculated the ratios,
the more reliable will be the estimation we make about the value of the company’s
shares. Valuable conclusions can be drawn by mangers as the ratio analysis-
 Helps in decision making.
 Helps in financial forecasting and planning.
 Helps in communicating financial strengths and weaknesses, and
 Helps in coordination and control.

Appraisal- Importance and Steps involved

Definition:

[43]
 Systematic and comprehensive review of the economic, environmental,
financial, social, technical and other such aspects of a project, to determine if it will
meet its objectives.
Importance of Appraisal:-
1) The success of a company depends on how efficiently and effectively its
capital resources are used and the CAPEX (capital expenditure) decisions within the
company require several functions. NPV is arguably the best method while IRR
seems to be the one preferred as it shows the yield of the invested capital. Payback is
used a lot as it is so easy to use.

2) Liquidity: The authors also suggest that the liquidity of a company's

securities can be managed by corporate policies and actions. For those companies
whose value is likely to be increased by having more liquid securities which is by no
means true of all companies (mature firms that don't need outside capital may well
benefit from having more concentrated ownership and hence less liquidity)
management should consider actions such as reducing leverage and substituting
dividends for stock repurchases as well as measures designed to increase the
effectiveness of their disclosure and investor relations program and the size of their
investor base. The theory of corporate finance has been based on the idea that a
company's market value is determined mainly by just two variables: the company's
expected after-tax operating cash flows or earnings, and the risk associated with
producing them. The authors argue that there is another important factor affecting a
company's value: the liquidity of its own securities, debt as well as equity required
returns for holding them.

3) Profitability: The state or condition of yielding a financial profit or gain. It

is often measured by price to earnings ratio. The profitability is an accounting
measure designed to gauge the financial health of a business firm or industry.
In general, it is defined as the ratio of profit earned to total sales receipts (or
costs) over some defined period. The profitability is a measure of the amount of profit
accruing to a firm from the sale of a product or service. It also provides an indication
of efficiency in that it captures the amount of surplus generated per unit of the product
or service sold. In order to generate a sizeable profit margin, a company must operate
efficiently enough to recover not only the costs of the product or service sold,

[44]
operating expenses, and the costs of debt, but also to provide compensation for its
owners in exchange for their acceptance of risk.
4) OPPORTUNITIES:
SUNFLAG STEEL see more opportunities in the years to come due to
continuous developments of new grades of high alloy steel as well wire rod and cold
rolling sheets. Further, venturing into the self-dependency of raw material and power
in decreasing in the cost of production and enhancing the profitability.
5) THREATS:
The global slowdown, raising and fluctuating prices of raw materials and
energy cost(power and fuel) is adversely affected the output prices thereby causing
hardship to the customers. The availability of the quality raw materials viz. Iron Ore,
Coal, LAM Coke is the cause of concern for the industry.

Balance Sheet Approach to Valuation

By observing the difference in the firm's equity value at different points in
time, one can better evaluate the effectiveness of financial decisions. A rudimentary
way of valuing the equity of a company is simply to take its balance sheet and
subtract liabilities from assets to arrive at the equity value. However, this book value
has little resemblance to the real value of the company.
Although your company’s tangible net worth (book value) may be low or
negative, the fair market value may be higher because of technology, sales potential,
or other factors. You can more easily defend the value you place on your company if
your projections are prepared with the assistance of a reputable accounting firm. It
also helps to bring to the negotiations valuation data for comparable business
ventures.

[45]
 It is important to negotiate hard for a reasonable valuation of your company
because the amount of equity you give the venture capitalists (VCs) will depend
largely on that calculation.
Cash vs. Profits:
Another way to value the firm is to consider the future flow of cash. Since
cash today is worth more than the same amount of cash tomorrow, a valuation model
based on cash flow can discount the value of cash received in future years, thus
providing a more accurate picture of the true impact of financial decisions. The
change in cash is different from accounting profits. A company can report consistent
profits but still become insolvent. For example, if the firm extends customers
increasingly longer periods of time to settle their accounts, even though the reported
earnings do not change, the cash flow will decrease.
Cash Cycle:
The duration of the cash cycle is the time between the date the inventory (or
raw materials) is paid for and the date the cash is collected from the sale of the
inventory. A company's cash cycle is important because it affects the need for
financing. The cash cycle is calculated as:
Days in inventory + Days in receivables - Days in payables

Revenue, Expenses, and Inventory:

A firm's income is calculated by subtracting its expenses from its revenue.
However, not all costs are considered expenses; accounting standards and tax laws
prohibit the expensing of costs incurred in the production of inventory. Rather, these
costs must be allocated to inventory accounts and appear as assets on the balance
sheet. Once the finished goods are drawn from inventory and sold, these costs are
reported on the income statement as the cost of goods sold (COGS). If one wishes to
know how much product the firm actually produced, the cost of goods produced in an
accounting period is determined by adding the change in inventory to the COGS.
Financial Ratios:
A firm's performance can be evaluated using various financial ratios. Ratios
are used to measure leverage, margins, turnover rates, return on assets, return on
equity, and liquidity. Additional insight can be gained by comparing ratios among
firms in the industry.
Firm Value, Equity Value, and Debt Value:

[46]
 The value of the firm is the value of its assets, or rather, the present value of
the unlevered free cash flow resulting from the use of those assets. In the case of an
all-equity financed firm, the equity value is equal to the firm value. When the firm has
issued debt, the debt holders have a priority claim on their interest and principal, and
the equity holders have a residual claim on what remains after the debt obligations are
met. The sum of the value of the debt and the value of the equity then is equal to the
value of the firm.
Cost of Capital:
The cost of capital is the rate of return that must be realized in order to satisfy
investors. The cost of debt capital is the return demanded by investors in the firm's
debt; this return largely is related to the interest the firm pays on its debt. In the past
some managers believed that equity capital had no cost if no dividends were paid;
however, equity investors incur an opportunity cost in owning the equity of the firm
and they therefore demand a rate of return comparable to what they could earn by
investing in securities of comparable risk.

Cash Flows to Debt and Equity:

When calculating the amount of cash flowing to debt and equity holders, it is
not appropriate to use the unlevered free cash flows because these cash flows do not
reflect the tax savings from the interest paid. Starting with the UFCF, add back the
taxes saved to obtain the total amount of cash available to suppliers of capital.
Debt Valuation:

While debt may be issued at a particular face value and coupon rate, the value
changes as market interest rates change. The debt can be valued by determining the
present value of the cash flows, discounting the coupon payments at the market rate
of interest for debt of the same duration and rating. The final period's cash flow will
include the final coupon payment and the face value of the bond.
To determine the value of the company, we have to take one more step, and
that is to calculate the value of the debt and subtract it from the value of the assets.
There a different ways of calculating the value of debt. One of the tools that
can be used to determine whether a company is incurring heavy debt is the Debt to
Equity Ratio. This ratio provides information on the portion of debt that is used for
the purposes of financing the assets of the company.

[47]
 In order to calculate the Debt to Equity Ratio of a particular company you
hold apply the following formula:
Debt Equity=Total Liabilities/Shareholder Equity

Investment Decision:
If the unlevered NPV of a project is negative, aside from potential strategic
benefits, the project is destroying value, even if the levered NPV is positive. The firm
always could benefit from the tax shield of debt by borrowing money and putting.
It to other uses such as stock buybacks.

Optimal Capital Structure:

The total value of a firm is the sum of the value of its equity and the value of
its debt. The optimal capital structure is the amount of debt and equity that maximizes
the value of the firm.
When it comes to capital structure, venture capitalists want equity because
that will give them a big slice of the profits if your company succeeds; but they also
want debt because debt holders get paid before equity holders if the company fails. So
they usually invest in redeemable preferred stock or debentures.

Share Buyback:
If a firm has extra cash on hand it may choose to buy back some of its
outstanding shares. One interesting aspect of such transactions is that they can be
based on information that the firm has that the market does not have. Therefore, a
share buyback could serve as a signal that the share price has potential to rise at above
average rates.

Mergers and Acquisitions:

Companies may combine for direct financial reasons or for non-financial ones
such as expanding a product line. The target firm usually is acquired at a premium to
its market value, with the hope that synergies from the merger will exceed the price
premium. Mergers do not always achieve their goals, as promised synergies may fail
to materialize.
Provisions governing the liquidation or merger of your business are important,
yet they are often overlooked. If you are not careful, you may unwittingly agree to a
provision that harms you or creates windfall gains for the venture capitalists in the
event of a merger or other corporate combination. If, for example, preferred

[48]
shareholders are allowed to treat a merger like liquidation, they can demand a cash
payment at the time of the merger.

Balance-Sheet
Balance sheet and Profit & Loss account:
One of the foremost considerations for granting of credit facilities for any
corporate borrower is the financial position of a concern. Banks employ various
techniques for financial appraisal. However, there is neither any uniformity in
appraisal nor any standard norms are fixed for such appraisal. The position may be
different from bank to bank and from project to project within the same bank
depending upon the nature and the size of the project. There are, however, some
important common features of financial appraisal.
Financial appraisal revolves round two important financial statements, which are
required to be submitted to the finance department in plant with the loan application.
These financial statements are:
 Balance Sheet
 Profit & Loss a/c.
Balance sheet reveals the financial position of a concern at a particular point
of time (usually the closing date of the operating year) while profit and loss a/c is the
summary of operations during the operating year.
Balance sheet is generally prepared on the basis of 'business entity' concept under
which the concern is taken as a separate entity than its promoter and will have its
separate assets and liabilities. Profit and loss a/c is the statement of working results of
the concern for its operations during the year and is an important indicator of the way
the business is being conducted by the concern and its financial results.
Financial appraisal is an important tool in the hands of bankers and forms the
very basis of the credit decision to be taken by them. The credibility of the financial
statements submitted to the banks is thus very important. It is preferable that audited
balance sheet and profit and loss a/c are submitted as these are generally considered
more reliable.
[49]
Form of Balance sheet and Profit & Loss account
Except for limited companies, no specific form in which the Balance Sheet
and P & L a/c of a concern is to be presented has been prescribed. Limited companies
have to draw their balance sheet in the format prescribed by Companies Act, 1956.
The companies are also required to submit copy of their annual financial
statements to the Registrar of companies. The various items in the balance sheet are
rearranged by the bankers to find out various financial indicators.
Incurred to generate them. The profit and loss account, also called Income
Statement gives information about the accounting profitability of the business or a
particular business unit over a period by comparing the earnings obtained with the
expenses
The balance sheet tells us about the business` wealth in accounting terms:
companies have assets and liabilities and these are what the balance sheet describes.
This financial statement gives this information from two points of view:
• The value of the company in accounting terms, i.e. its resources in terms of
cash, bank balances, its stock of products, its buildings, land, and the money
owed to it by customers, etc., also known as assets
• How it has financed the resources it owns, i.e. whether from debt or
shareholder equity also called liabilities
The first step for rearrangement starts with grouping of individual items of
assets and liabilities into major groups as under:

Liabilities Side:
Long Term Liabilities:
A. Capital and Reserves: Representing contribution of the promoters/owners
of the concern towards business. It is also known as the 'net worth' of the
concern.
B. Term Liabilities: Representing those liabilities which are payable after one
year.
Short Term Liabilities:
C. Current Liabilities and provision: Representing those liabilities which
are generally payable within one year.

Assets Side:
Long Term Assets:

[50]
A. Fixed Assets: Representing assets of fixed nature such as land, building,
plant and machinery etc. permanently required by the concern to carry out its
business.
B. Intangible Assets: Representing assets such as goodwill, patents,
preliminary expenses etc.
C. Investments: to other group concerns or for activities not directly related to
the business of the unit.
Short Term Assets:
D. Current Assets: Representing those assets which are likely to be converted
to cash within an operating period.
E. Other Non-current Assets: It represents miscellaneous assets not
realisable during the current operating period such as non-consumable stores
and spares.
Balance Sheet

LIABILITIES ASSETS
Capital & Reserve Fixed assets
Current Liabilities s
Other non-current
Term Liabilities asset
Current assets

Capital & Reserves (Net Worth)

Net worth is a measure of financial stake of the promoters/owners in the
business and is also referred to as 'owned funds'. This is an important indicator of
intrinsic financial strength of the concern and is generally compared to the total
outside liabilities of the concern. The following items on the liability side of the
balance sheet are added up to find out the net worth:
 Ordinary share capital.
 Preference share capital (redeemable after 12 years).
 General reserve.
 Share premium
 Development rebate reserve.
 Investment allowance reserve.
 Other reserves (excluding provisions).

[51]
 Surplus in profit and loss account.
However, if there is any deficit (carry forward loss) in profit and loss a/c on
the assets side of the balance sheet, the same should be deducted to find out the net
worth of the concern. The value of any intangible assets is also deducted to arrive at
the tangible net worth. The revaluation reserve, if any, is generally not counted for the
purpose of determining the net worth.
Term Liabilities
The liabilities which are not payable within one year are grouped as ‘term
liabilities’ and will generally include the following items in the balance sheet:
 Debentures (not maturing within one year).
 The part of debentures which is compulsorily convertible to share capital
should be shown as a part of equity capital forming net worth of the concern.
The balance amount only need to be shown under this head and included in
the term liabilities.
 Redeemable preference shares (not maturing within one year, but of maturity
not exceeding 12 years).
 Term loans (exclusive of instalments payable within one year and overdue
instalments. if any).
 Deferred payment credits (exclusive of instalments payable within one year).
 Term deposits repayable after one year.
 Deposits from dealers/selling agents irrespective of their tenure if such
deposits are accepted to be repayable only, when the dealership/agency is
terminated.
 Other such liabilities, which are repayable after one year such as sales tax loan
etc.
Current Liabilities:
All liabilities which are of short-term nature and are generally payable within
a period of one year are taken as current liabilities. Current liabilities also include
estimated or accrued amounts which are anticipated to cover expenditure within the
year for known obligations such as provisions for bonus payments, taxation etc. The
following items are required to be added up to calculate the total current liabilities of
a concern:
 Short- term borrowing (including bills purchased and discounted) from banks
and others.
 Unsecured loans.
 Public deposits maturing within one year.
 Sundry creditors (trade) for raw materials and consumable stores and spares.

[52]
 Interest and other charges accrued but not due for payment.
 Advances/progress payments from customers.
Instalments of term loans, deferred payment credits, debentures, long- term
deposits payable within one year.
 Redeemable preference shares maturing within one year.
 Lease rentals payable during the year in respect of leased assets, if any.
 Provident Fund dues.
 Provision for taxation.
 Sales tax, excise duty etc.
 Other provisions.

Miscellaneous Current Liabilities:

 Dividends
 Liability on account of dividends is also subject to same treatment as
explained in case of provision for taxation.
 Liabilities for expenses.
 Gratuity payable within one year.
 Other provisions.
 Any other payments due within one year.
Fixed Assets:
Fixed assets are generally shown in the balance sheet on the gross value
termed as 'gross block' which would generally include land and building, plant and
machinery, construction in progress, furniture and fixtures, vehicles, etc. The
depreciation on fixed assets is provided annually and credited to a separate
depreciation reserve fund. The 'net block' of fixed assets which is actually taken into
the balance sheet would he obtained by deducting depreciation reserve fund from the
'Gross block'. 'Capital work in progress' if shown separately in the balance sheet is
also to be classified under ‘Fixed Assets’.
Current Assets:
The item is of current assets include cash and bank balances and such assets
which are realisable into cash within an operating period of one year.
o Cash and bank balance.
o Investments.
Investments in shares and advances to other firm/companies, not connected
with the business of the concern may not be allowed to be included in current assets.
Investment for long- term purposes e.g. sinking fund, gratuity fund etc.is also not
considered as a current asset. The following investments under this head will be
considered:

[53]
(a) Government and other trustee’s securities.
(b) Fixed deposits with banks.

Investments made in shares, debentures etc. of a current nature, units of Unit

Trust of India and other mutual funds, and in associate companies/subsidiaries, as
well as investments made and/or loans extended as inter- corporate deposits shall not
be considered as current assets.
Fixed deposits with banks as margin for non- fund based credit facilities shall
also not be taken as current assets.
 Receivables arising out of sales including exports other than deferred
Receivables including bills purchased and discounted by banks.
Receivables outstanding for more than 6 months may not be accepted as
current assets.
Export receivables are to be shown separately than other receivables for
domestic sales as this information will be necessary to determine the margin
requirements for working capital.
Domestic receivables arising out of bills negotiated under inland letters of
credit should also be shown separately.
 Instalments of deferred receivables due within one year.
 Inventory/stock of goods consisting of
 Raw materials and components used in the process of manufacture including
 Stocks in process including semi finished goods.
 Finished goods including goods in transit.
 Other consumable spares.
Other Non-Current Assets:
This category includes such tangible miscellaneous assets which are not
current in nature and are also not classified as fixed assets. It may be taken as residual
category of tangible assets with a concern and will consist of:Investments/book
debts/advances/deposits to subsidiary companies/ affiliates and others inter corporate
deposits/investment in units of Unit Trust of India & other Mutual Funds.
Investment for long term purposes e.g. sinking fund, gratuity fund etc.
 Dead inventory including non-consumable stores and spares. Other
miscellaneous assets including dues from directors. Security deposits/ tender
deposits.
 Fixed deposits with banks as margin for non-fund based credit facilities.
 Receivables outstanding for more than 6 months.
Intangible Assets:
The items under this head would generally consist of:-
 Goodwill.

[54]
 Patents.
 Preliminary and formation expenses not written off.
 Bad and doubtful debts not provided for.
It is also possible that a few items, which may not be shown in the balance
sheet, are required to be taken into account while evaluating current assets and current
liabilities.
Classification of assets and liabilities as discussed above is based on
guidelines issued by Reserve Bank of India from time to time. Reserve Bank of India
has now given complete freedom to banks to frame their own policy, in this regard.

SUNFLAG IRON AND STEEL COMPANY LIMITED,

BALANCE SHEET AS AT 31st MARCH 2017 to 2019 .
As at As at As at
31 Mar 17 31 Mar 18 31 Mar 19
Particulars
(Rs. in Lacs) (Rs. in Lacs) (Rs. in Lacs)
LIABILITIES:
Share Capital 180.22 180.22 180.22
Reserves & Surplus 528.01 656.68 760.23
Net Worth 708.23 836.90 940.45
Secured Loans 221.26 209.11 314.20
Unsecured Loans 87.64 94.25 0.00
TOTAL LIABILITIES 1725.36 331977.16 2195.1
ASSETS:
Gross Block 1304.92 1331.10 713.79
(-) Acc. Depreciation 794.25 818.32 0.00

[55]
Net Block 510.67 512.785 713.79

Capital Work in Progress. 46.25 107.59 0.00

Investments. 11.72 11.72 14.50
Inventories 391.44 432.83 552.17
Sundry Debtors 248.88 301.76 286.2
Cash And Bank 74.92 53.61 57.94
Loans And Advances 90.43 140.33 138.96
Total Current Assets 805.67 928.53 1325103509
Current Liabilities 337.78 390.70 485.45
Provisions 19.40 29.66 23.28
Total Current Liabilities 448.49 508.17 508.36
NET CURRENT ASSETS 526.36 508.17 526.36
TOTAL ASSETS 1254.65 1140.26 742.42

Profit & Loss A/C

Sunflag Iron & Steel Company Ltd. (Rs. in Lacs)
Particulars Year Ended Year Ended Year Ended
31 Mar 17 31 Mar 18 31 Mar 19
INCOME:

Sales Turnover 1713.23 2129.19 2229.49

Excise Duty 196.84 54.75 0.00

NET SALES 1516.39 2074.44 2229.49
TOTAL INCOME 1558.99 2106.96 2341.46
EXPENDITURE:

Manufacturing Expenses 130.98 204.52 0.00

Material Consumed 897.05 1234.77 1473.47

power and fuel cost 122.63 122.38 . 000 0.00

Employee cost 94.26 102.08 102.08

misclleneous Expenses 160.91 188.94 517.01

TOTAL EXPENDITURE 1405.83 1853.18 2092.56
Operating Profit 145.41 236.85 237.78
EBITDA 153.16 253.78 248.90

[56]
 Depreciation 33.19 34.13 37.87

EBIT 84.91 184.16 172.29

Interest 35.06 35.49 38.74
EBT 84.91 184.16 172.29
Taxes 19.74 55.49 61.70
Profit and Loss for the Year 65.17 128.67 65.17
Non Cash Adjustments 0.00 0.47 0.00

PAT 43.62 43.60 94.90

Comparative Analysis of Profit & Loss A/C

For The Year 2018 & 2019 (Rs. in Lacs)

Year Ended Year Ended Absolute

Particulars % Change
31 Mar 18 31 Mar 19 change

INCOME:

NET SALES 2129.19 2229.49 100.3 4.71

Other income 16.19 11.12 [-5.07] [31.31]

Stock Adjustment 15.59 100.85 85.26 546.89

EXPENDITURE:
Manufacturing
204.52 0.00 [-204.52] [-100]
Expenses
Material
1234.77 1473.47 240.7 19.49
Consumed
Power & fuel 122.38 0.00 [-122.38] [-100]

Employee cost 102.57 102.08 [-0.49] [-0.48]

Miscellaneous
188.94 517.01 307.07 163.05
exp
Interest 35.49 38.74 3.25 9.16

Depreciation 34.13 37.87 3.74 10.96

EBT 184.16 172.29 [-11.87] [-6.45]

Tax 55.49 61.70 6.21 11.19

PAT 128.6 110.59 [-18.08] [-14.06]

[57]
 Interpretation:
 The net sales has been decreased in year 2018 as compared to 2019 by the
percentage of (31.31)
 Interest has been increased in year 2018 as compared to year 2017

Comparative Analysis of Profit & Loss A/C

For The Year 2017 & 2018 (Rs. in Lacs)
Year Ended Year Ended Absolute %
P Particulars
31 Mar'17 31 Mar'18 Change c Change
INCOME:

NET SALES 1713.23 2129.19 415.96 24.28

Other Income 7.75 16.93 9.18 118.45

Stock
34.85 15.59 (-16.26) (-55.27)
Adjustment
EXPENDITURE:
Manufacturing
130.98 204.52 73.54 56.15
Expenses
Material
897.05 1234.77 337.72 37.64
Consumed
Power & fuel 122.63 122.38 (-0.25) (-0.20)

Employee cost 94.26 102.57 8.31 8.82

miscellaneous
160.91 188.94 28.03 17.42
Expenses
Interest 35.06 35.49 0.43 1.23

Depreciation 33.19 34.13 0.94 2.83

EBT 84.91 184.16 99.25 116.89

Taxes 19.74 55.49 37.75 181.10

PAT 65.17 128.67 63.5 97.44

Interpretation:
 From the above statement it is observed that
 Net sales has been increased in year 2017 as compared to year 2018 by the
percentage of 24.28 PAT has been decrease in year 2013 as compared to 2016
by the percentage of

Comparative Analysis of Balance-Sheet

[58]
 For The Year 2018 & 2019 (Rs. in Lacs)

Year Ended Year Ended Absolute

Particulars % Change
31 Mar'18 31 Mar'19 C
LIABILITIES:
Share Capital 180.22 180.22 0.00 0.00
Reserves & Surplus 656.68 760.23 203.55 36.56
Loans 303.36 314.20 10.84 3.577
Current liabilities 309.70 485.45 94.75 30.59
Provision 29.66 23.28 (-6.38) (-21.51)
TOTALLIABILITIES 1379.62 1763.38 383.76 27.82
ASSETS:
Fixed assets 632.09 216.06 (-416.84) (-65.95)
Investments. 11.72 14.50 2.78 23.72
Inventories 432.83 552.17 119.34 27.57
Sundry Debtors 301.76 286.2 (-15.56) (-5.16)
Cash And Bank 53.61 57.94 4.33 8.08
Loans And Advances 140.33 138.96 (-1.37) (-0.98)
Fixed deposits 0.00 0.00 0.00 0.00
TOTal ASSETS 1572.34 1265.83 (-306.51) (-19.49)

Interpretation:
 Cash has been increase in year 2019 by change in value Rs. 4.33 Cr. And also
percentage increase by 8.08
 Current liabilities increase in year 2019 as compared to year 2018 by
percentage of 30.59

Comparative Analysis of Balance-Sheet

For The Year 2017 & 2018 (Rs. in Lacs)
Particulars Year Ended Year Ended Absolute %
31 Mar'17 31 Mar'18 Change Change
LIABILITIES:
Share Capital 180.22 180.22 0.00 0.00

Reserve& Surplus 528.01 656.68 128.67 24.37

Loans 308.9 303.36 (-5.54) (-1.79)

[59]
 Current Liabilities 337.78 390.70 52.92 15.67

Provisions 19.40 29.66 10.26 52.89

TOTAL 1374.21 1560.62 186.41 13.56

LIABILITIES
ASSETS:
Fixed assets 728.29 632.09 (-96.2) (-13.21)

Investments. 11.72 11.72 0.00 0.00

Inventories 391.44 432.83 41.39 10.57

Sundry Debtors 248.88 301.76 52.88 21.25

Cash And Bank 74.92 53.61 (-18.31) (-24.44)

Loans And 90.43 140.33 49.9 55.18

Advances
Fixed deposits 0.00 0.00 0.00 0.00

TOTAL ASSETS 1545.68 1572.34 26.66 1.72

Interpretation:
 Cash has been decrease in year 2018 as compared to year 2017 by the
percentage of(-24.44).
 Current liabilities have been increase in the year 2018 as compared to year
2017 by the change value Rs. 50.92 Cr. And percentage change in 15.67.
Current Ratio:
Current Ratio = Current Assets / Current Liabilities

Table:
Particulars 2016-2017 2017-18 2018-19
Current Assets (Rs. In Cr.) 817.39 940.25 1049.77
Current Liabilities’ (Rs. In Cr.) 357.18
3 339.36 508.73

Current Ratio 2.29:1 2.77:1 2.06:1

Graph:

[60]
 Current Ratio
3

2.5

Axis Title 1.5

0.5

0
2016-2017 2017-2018 2018-2019

Interpretation: The Standard for this ratio is 2:1 but in year 2017-18 more than
that but in year 2016-17 less than that. Therefore it shows that company’s short term
paying capacity in all year is satisfactory.

Quick Ratio:
Quick Ratio = Quick Current Assets/ Current Liabilities
Table:
Particulars 2016-17 2017-18 2018-19
Quick Current Assets
(Rs. In Cr.) 335.52 367.09 358.64
Current Liabilities 357.18
3 339.36 508.73
(Rs. In Cr.)
110.59Quick Ratio 0.94:1 1.08:1 0.70:1
Graph:

[61]
1.2

0.8

0.6 Series 3

0.4

0.2

0
2016-2017 2017-2018 2018-2019

Interpretation: The standard for this ratio is 1:1 but here for three years more than
that therefore it shows company's paying capacity is not satisfied / not satisfactory.

Working Capital Turnover Ratio:

Working capital Turnover Ratio = Sales/ Working capital

Table:
Particulars 2016-17 2017-18 2018-19
1713..23 2129.19
Sales (Rs. In Cr.) 2229.49
Working Capital
(Rs. In Cr.) 460.21 600.89 541.04
Working Capital
Turnover Ratio 3.72 3.54 4.12
Graph:

[62]
4.2
4.1
4
3.9
3.8
3.7 Series 3

3.6
3.5
3.4
3.3
3.2
2016-2017 2017-2018 2018-2019

Interpretation:This ratio shows the velocity of the utilization of working capital.

The ratio measure the efficiency of the company with which the working capital is
used by the company hence higher the ratio better it is from the above analysis it is
clean that the company utilization its working capital properly & effectively.

Net Profit Ratio:

Net Profit
Net Profit Ratio = -------------------- x 100
Sales
Table:
Particulars 2016-17 2017-18 2018-19
Net Profit
43.62 43.60 94.90
(Rs. in Lack)
Net Sales
1713..23 2129.19
(Rs. in Lack) 2229.49
Net Profit
Ratio 2.55 2.05 4.26

Graph:

[63]
 4.50%
4.00%
3.50%
3.00%
2.50%
2.00% Series 3
1.50%
1.00%
0.50%
0.00%
2016-2017
207-2018
2018-2019

Interpretation: This ratio shows the profitability against utilization of long term
sources greater the ratio better it is. But in year 2014 better utilization of long
term sources than in year 2012-13

Fixed Assets Turnover Ratio:

Net sales
Fixed Assets Turnover Ratio = -----------------------------
Net total fixed asset
Table:
Particulars 2016-17 2017-18 2018-19
Net Sales 1713..23 2129.19
(Rs. In Cr) 2229.49 Graph:
Net Total Fixed Asset 728.29 632.09
(Rs. in Cr) 216.06
Fixed Assets Turnover
Ratio 2.35 3.37 10.32
Interpretation: This ratio shows the efficiency of utilization fixed asset by the
company. But in year 2019 better utilization of fixed asset as compare to year 2017
and 2018

Debtors Turnover Ratio:

Debtors Turnover Ratio = Sales/Debtors

[64]
 Table:
Particulars 2016-17 2017-18 2018-19
Sales(Rs. in Cr) 1713..23 2129.19 2229.49
Average Debtors 248.88 301.76 286.2
Rs. in Cr)
Debtors Turnover
Ratio 6.88 7.06 7.79
Graph:

7.8

7.6

7.4

7.2

7 Series 3

6.8

6.6

6.4
2016-2017
2017-2018
2018-2019

Interpretation:
The above calculation shows very inflated figure of DTR. This is primary
because the figure for debtors for sales was not available with the account
departments. Therefore this ratio does not give the clear picture of company Debtors
turnover ratio and collection period.

Debtors Collection Period (in days) or

(Average Collection Period):
Debtors Collection Period (in days)Debtors/Sales*100
Table:
Particulars 2016-17 2017-18 2018-19
Debtors 248.88 301.76 286.2
(Rs. in Cr)
Credit Sales
1713..23 2129.19
(Rs. in Cr) 2229.49
Average Collection
Period (in days) 14.53 14.17 12.37

[65]
Graph:

Sales

2016-2017
2017-2018
2018-2019

Interpretation: The standard for this ratio is 30 days. It show the company
recovery policy. But here1year 2013 and 2014 company recovery policy is
satisfactory and in year 2012 company recovery policy is not satisfaction.

Debt-Equity Ratio:
Debt-Equity Ratio = Long Term Debt/Share holder’s fund
Table:
Particulars 2016-17 2017-18 2018-19
308.9 303.36
Long Term debt
(Rs. in Cr.) 314.20

Shareholder Funds
(Rs. in Cr.) 708.23 836.9 940.45

Debt-Equity Ratio 0.44 0.36 0.33

[66]
 Graph:

0.45
0.4
0.35
0.3
0.25
0.2
Series 3
0.15
0.1
0.05
0
2016-2017
2017-2018
2018-2019

Interpretation: This ratio shows the relationship between lenders and owners.
Generally lenders fund must be less than owners fund, but here in all the years owners
fund more than creditors /lenders fund

Return on Equity Capital:

Return on equity capital = Net profit after tax/ Equity Share Capital X 100
Table:
Particulars 2016-17 2017-18 2018-19
43.62 43.60 94.90
Profit after tax(Rs.in Cr)
Equity share Capital (Rs. in Cr) 180.22 180.22 180.22
Ratio 24.20% 24.19% 52.66%

Graph:

[67]
60.00%

50.00%

40.00%

30.00%
Series 3
20.00%

10.00%

0.00%
2016-2017
2017-2018
2018-2019

Interpretation: This ratio shows the capability of owner’s investment. Therefore

year 2014 company has better utilized the resources of owners as compared to year
2012and 2013

Return on Capital Employed (ROCE):

Return on capital employed= Net Profits/ Capital employed 100
Table:
Particulars 2016-17 2017-18 2018-19
Net Profit(Rs. in Lack) 43.62 43.60 94.90
Capital Employed 1725.36 1977.16 2195.1
(Rs. in Lack)
ROCE 2.53% 2.21% 4.32%

Graph:

[68]
 4.50%
4.00%
3.50%
3.00%
2.50%
2.00% Series 3
1.50%
1.00%
0.50%
0.00%
2016-2017
2017-2018
2018-2019

Interpretation: This ratio shows the profitability against utilization of long term
sources greater the ratio better it is. But in year 2019 better utilization of long term
sources than in year 2017 and 2018.

Earning Per Share:

Earning Per Share: Net Profit/ No. of Share
Table:
Particulars 2016-17 2017-18 2018-19
Net Profit 43.62 43.60 94.90
(Rs. In Cr)
No. of Share
(Rs. in Cr) 18.22 18.22 18.22

EPS 2.39 2.39 5.21

Graph:

[69]
 6

3
Series 3
2

0
2016-2017
2017-2018
2018-2019

Interpretation: This ratio shows the profitability of company on per share basis.
But in year 2019 company has better earning per share as compared year 2017 and
2018.

HYPOTHESIS
• The Financial position of SISCO is good.
• The company has growth aspects.
• The company’s financial position in market is good and company
retaining his position

[70]
 FINDINGS
&
SUGGESTIONS

[71]
 FINDINGS

 After a study of Working capital management at sun flag iron & steel company
Ltd Through various financial institutions records company has maintain the
repayment criteria with good relationship.
 It is also noted that the creditability of sun flag is better amongst the vidharbha
region.
 This is because of sun flag management never face any difficulties for any
new project investment.
 Management gives the liberal to the customers to use their products and for
recovery.
 In view of the above, It seems that sunflag management can sustain any
financial satiation and challenges.

SUGGESTIONS
In Working Capital Management, there are mainly three parts they are Cash
Management, Receivables Management and Inventory Management. For
optimum use of working capital, these three parts should be managed properly, for

[72]
that I would like to give suggestions toSunflag iron & steel company Ltd, they are as
follows:
 Considering the cash management of the firm should be maintain a cash flow
budget every year, considering monthly or quarterly. During the preparation of
the cash budget.
 Considering the receivables management, certain credit standards and policy
should be established, like:
o Establishment of policy in appointing sales recovery force.
o Cash discounts policy for cash purchases and early payment of debts
balance by customer to be established.
o Credit rating systems to be established.
 Considering the inventory management, there should be a fast movement of
inventory, by taking efforts in increment of the sales.
 Considering the creditors the management should set a price range for the
creditors.
 The creditors who are paid early should be given a low price.

CONCLUSIONS
 This is a project on working capital analysis. Working capital is very
important activity in any organization. In short, working capital is a life
blood of any organization. Working capital management has gives us
tremendous exposure in the field of financial management. Here we have
actually put our theoretical knowledge to practical analysis.

 This project gives us not only practical knowledge about the company but
also creates a great team spirit among us. This effort ought to us that single
person could not complete any task wholly and successfully it is to be a joint
work.

[73]
  After studying the working capital management of the company, we can
conclude that the company is using its working capital efficiently, also the
company has good liquidity position, but company is using more liberal
policy in collection of debtors.

BIBLIOGRAPHY
BOOKS:
 Financial Management : N. M. Vechalekar.

 Financial Management : Ravi M. Kishore (6th edition).

 Financial Management : R. P. Rastogi.
 Financial Management : I.M.Pandey
 Financial Statements of Sunflag iron & steel company Ltd.
 From 2016-17 to 2017-18 to 2018-2019
 www.sunflagsteel.com

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